December 31, 1997
Mr. Jonathan G. Katz
Secretary
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: File No. S7-25-97
Release No. 34-39093
Dear Mr. Katz:
Georgeson & Company Inc. is the leading provider of
information and services relating to ownership and market
activity of publicly traded companies The firm's services
include securityholder solicitations, strategic investor
relations, corporate governance, financial markets
consulting and a variety of analytical and research-based
products and software.
Since 1935, Georgeson has conducted an estimated 20,000
securityholder transactions, including proxy solicitations,
proxy contests, tender offers, exchange offers and
consents. In contested situations, Georgeson will work for
either dissidents or incumbents, raiders or defending
managements. It is our goal to ensure that the proxy
process is both efficient and neutral, so that the
regulatory balance is not tipped in favor of either
management or shareholders.
The Securities and Exchange Commission (the "Commission")
is proposing revisions to Rule 14a-8, the shareholder
proposal rule. Based on our practical experience in
conducting solicitation campaigns and advising companies on
corporate governance, we believe that the proposed
amendments should improve the shareholder proposal process.
While the revisions represent a substantial shift in
regulatory approach, they take into account changes in the
relationship between shareholders and issuers that are
highly relevant to the shareholder proposal process. These
changes include:
ú the increase in stock ownership by fiduciaries;
ú the growth in economic, political and voting power of
pension funds and other institutional investors;
ú the liberalization of shareholder communications
following the 1992 proxy rule changes;
ú the promulgation of proxy voting standards by the
Department of Labor;
ú the centralization of proxy processing in ADP Investor
Communication Services and the rapid growth of shareholder
organizations such as Institutional Shareholder Services
and the Council of Institutional Investors;
ú the availability of electronic communication and other
new technology increasingly accessible to all shareholders,
both large and small; and
ú a decade of highly successful shareholder activism
that has changed the culture of corporate America and
established an active role for shareholders in corporate
governance.
As stated in our March 10, 1997 questionnaire and comment
letter, we believe that shareholders should play a greater
role in the shareholder proposal process. We applaud the
Commission for taking this approach and for seeking to
promote a meaningful referendum on issues of importance to
shareholders. We believe that by introducing higher
resubmission thresholds and shifting responsibility to
shareholders through the new override mechanism, the
proposed revisions should improve the quality of proposals
and increase the relevance of the process to both
shareholders and issuers. This approach should have the
effect of encouraging proponents to be more selective in
targeting companies with poor performance or egregious
policies and in drafting proposals related to specific
shareholder concerns.
Plain-English Question & Answer Format
We support the use of plain English and the Q&A format.
This approach is particularly appropriate for rules that
are designed for use by shareholders, rather than
securities lawyers. The Commission's use of plain English
in the proposal release should convince skeptics that the
results are easy to use and understand.
Personal Claim or Grievance Exclusion _ Rule 14a-8(c)(4)
We support the continued exclusion of any proposal that "on
its face relates to a personal grievance or special
interest," but we oppose the revised treatment of "neutral"
proposals. A "no view" response from the Division staff,
requiring recourse to the courts, would increase cost and
reduce efficiency. While these are not easy decisions,
resolution at the staff level should continue to be
acceptable to all parties.
A possible alternative would be to bring "neutral" personal
grievance proposals under the override provision (discussed
below) and thereby allow shareholders to decide whether
such proposals merit inclusion in the proxy statement.
The Relevance Exclusion _ Rule 14a-8(c)(5)
We support the proposed elimination of the subjective
"otherwise significantly related" language and the
application of a purely economic standard. Despite the
arbitrariness of the suggested $10 million / 3% standard,
the approach is practical, has the benefit of clarity, and
would increase the efficiency of the process by eliminating
debate over relevance.
The "Ordinary Business" Exclusion _ Rule 14a-8(c)(7)
We endorse the elimination of the term "ordinary business,"
but we suggest a modification to the proposed new phrasing:
"specific operational decisions ordinarily left to the
discretion of management." In our view, the term
"operational" better describes the category of activities
that are the exclusive concern of management. The term
"business" is broader, and encompasses elements of policy
and strategy that are of legitimate concern to shareholders
and their elected representatives, the board of directors.
The Resubmission Thresholds: _ Rule 14a-8(c)(12)
We support an increase in resubmission thresholds.
Shareholder involvement in the proxy process has increased
dramatically during the past decade, requiring adjustment
of the minimal resubmission percentages that were pegged to
the low shareholder turnout that was the norm prior to the
rise of activism.
We recommend a different approach to administering
resubmission thresholds. First, we suggest that the
thresholds be calculated as a percentage of outstanding
shares, rather than votes cast. This approach would
eliminate differences in the counting of abstentions and
would make voting results comparable from year to year and
for different companies.
Second, we suggest that the resubmission threshold for the
first year should be 5% of outstanding shares _ a
requirement that is in line with other regulatory and
disclosure standards. For each subsequent year, we suggest
a doubling of the resubmission threshold. Thus, the
resubmission thresholds would be:
first subsequent year _ 5% of outstanding shares
second subsequent year _ 10% of outstanding shares
third subsequent year _ 20% of outstanding shares
fourth subsequent year _ 40% of outstanding shares
any subsequent year _ a majority of outstanding shares
These thresholds would foster an up-or-out approach,
eliminate the repetition of stale proposals that achieve
only minimal support, and stimulate proponents to craft
proposals directly linked to shareholder concerns.
Proposed Override Mechanism
We support the override mechanism, which is at the core of
the Commission's effort to delegate responsibility to
shareholders and reduce regulatory involvement in the
shareholder proposal process. We believe that the override
would provide shareholders with an extraordinarily powerful
tool whose potential impact cannot yet be assessed, and
therefore the minimum override percentage should be no
less than 5% of outstanding shares, rather than the
proposed 3%. We agree that a proponent's shares should be
includable in calculating the percentage and that override
supporters should be limited to one proposal per company.
We do not think that a proponent should have to await
Division action before undertaking an override effort. We
think override supporters should commit to continued
ownership through the shareholder meeting _ the same
standard that applies to the proponent.
Discretionary Voting Authority _ Rule 14a-4
We are concerned that the Commission's revisions to Rule
14a-4 would encourage the development of an alternate path
for shareholder proposals _ in effect, an end run around
the safeguards and limitations of Rule 14a-8. In our view,
Rule 14a-8 should be the mechanism for introduction of
shareholder proposals, and Rule 14a-4 should be regulated
as a mechanism for non-management solicitations.
We support the introduction of a 45-day notice requirement
(which, as the release points out, could be overridden by a
company's advance notice by-law). However, we think the
Commission should reconsider its treatment of discretionary
voting by management on non-14a-8 proposals. Shareholders
should not be encouraged to use 14a-4 as a back-door
alternative to Rule 14a-8 or as a tactic to pressure or
harass management. Instead, Rule 14a-4 campaigns should be
recognized as counter solicitations in which the burden is
on proponents to solicit shareholder support rather than
relying on the cancellation of management's voting
discretion.
We would keep the 45-day notice requirement and we would
permit the exercise of voting discretion whenever
management's proxy materials included the prescribed
disclosures. We would not require a reference to the non-
management proposal on the proxy card or a box for
shareholders to withhold discretionary voting authority.
In our view, proponents using Rule 14a-4 should supply
their own form of proxy, to be mailed by management if the
proponent does not request the shareholder list.
As a practical matter, the Commission's suggestion to bring
a non-management proposal indirectly into management's
proxy through a checkbox designated "withhold discretionary
voting authority" would be confusing, cumbersome and
possibly misleading.
As electronic proxy voting and Internet voting become
available in the next year, proponents relying on Rule 14a-
4 will have practical and inexpensive means of soliciting
and receiving shareholder votes that will be far more
effective than the management proxy for a bona fide counter
solicitation.
Conclusion
The proposed revisions to Rule 14a-8 have been the target
of severe criticism from activist organizations.
Resistance to change and fear of higher standards are
predictable. For many years proponents have benefited from
handicapping that was built into Rule 14a-8 to protect
access by small shareholders. But shareholder demography
has changed in the past decade, and the handicaps need to
be adjusted. The proxy statement is not a billboard.
Proponents should be required to establish a clear link
between their proposals and the interests of other
shareholders. This does not mean that proposals dealing
with social and political issues do not belong in proxy
statements; in fact, many proponents of such issues have
successfully demonstrated the ties between the policy
questions that concern them and the economic performance of
targeted companies. Regardless of the type of proposal,
all proponents should be held to the same standard they
impose on corporate boards and managers _ their activities
must maximize shareholder value.
Respectfully submitted,
Georgeson & Company Inc.
By: ______________________
John C. Wilcox
Chairman